<PAGE>
[LOGO] AQUARION
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
APRIL 29, 1998
To The Shareholders:
The Annual Meeting of Shareholders of Aquarion Company (the "Company") will
be held at 9:30 a.m., on Wednesday, April 29, 1998, at the William S. Warner
Water Treatment Plant, 4975 Black Rock Turnpike, Fairfield, Connecticut, for the
purposes set forth below. Tours of the Treatment Plant will be conducted for
shareholders and guests immediately following the Annual Meeting. Directions to
the Plant are on the back page of this notice.
1. To elect three directors to Class I of the Board of Directors.
2. To ratify the selection of Price Waterhouse as the Company's independent
public accountants for the coming year.
3. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on March 3, 1998, will be
entitled to vote at the meeting.
By Order of the Board of Directors
LARRY L. BINGAMAN
Secretary
- --------------------------------------------------------------------------------
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO THE MEETING. WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING, HOWEVER, PLEASE SIGN AND DATE THE PROXY CARD AND PROMPTLY
MAIL IT IN THE ENCLOSED ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO
THE MEETING AND VOTE IN PERSON. IF YOU PLAN TO ATTEND, PLEASE CHECK THE BOX
PROVIDED ON YOUR PROXY CARD.
- -------------------------------------------------------------------------------
<PAGE>
AQUARION COMPANY
835 MAIN STREET
BRIDGEPORT, CONNECTICUT 06604
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 29, 1998
The enclosed Proxy is solicited by the Board of Directors of the Company
for use at the Annual Meeting of Shareholders to be held on April 29, 1998, and
any adjournment thereof.
Holders of the Common Stock of the Company of record at the close of
business on March 3, 1998, are entitled to notice of and to vote at the meeting.
On the record date, there were 7,386,780 outstanding shares of Common Stock,
which is the only class of capital stock of the Company entitled to vote at the
meeting. Each shareholder is entitled to one vote for each share of Common
Stock held.
A proxy may be revoked by a shareholder at any time before it is voted by
mailing his or her revocation or a subsequent proxy to the Secretary of the
Company at the above address or by filing a written revocation at the meeting
with the Secretary of the Company. Each valid proxy will be voted at the
meeting, and such vote will be cast in accordance with the shareholder's
direction specified in the proxy.
The cost of soliciting proxies, which will be borne by the Company, is
estimated to total $5,500. In addition to solicitation by mail, directors,
officers and regular employees of the Company may solicit proxies personally or
by telephone. Banks, brokerage houses and other custodians, nominees or
fiduciaries who hold stock in their names will be requested to solicit proxies
from the persons owning such stock. Chase Mellon Shareholder Services has been
retained by the Company to assist in such solicitation.
The Proxy Statement and Proxy are being mailed to shareholders beginning on
April 2, 1998.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES AND BENEFICIAL OWNERSHIP
The Board of Directors of the Company is divided into three classes. At
the Annual Meeting, three directors will be elected to Class I for a three-year
term. At the 1999 Annual Meeting of Shareholders, directors will be elected to
Class II for a three-year term and at the Year 2000 Annual Meeting of
Shareholders, directors will be elected to Class III for a three-year term.
Information with respect to the three nominees proposed for election to Class I
and information with respect to the six other directors is set forth below. All
nominees have been nominated by the Board of Directors for election as
directors. It is intended that the proxies will be voted for the three nominees
hereinafter named, all of whom have indicated their willingness to serve if
elected, unless otherwise indicated on any proxy. All nominees are presently
directors of the Company Each nominee has held the principal occupation shown
for the past five years unless otherwise indicated. Directors are elected by
plurality vote. Abstentions and broker non-votes will not have the effect of
votes in opposition to a director.
While it is not anticipated that any of the nominees will be unable to serve as
a director, if that should occur, the proxies will be voted for such other
person or persons as the present Board of Directors shall determine, or the
Board of Directors may reduce the number of directors and the number of Class I
directors to eliminate the vacancy.
1
<PAGE>
NOMINEES FOR ELECTION AS CLASS I DIRECTORS TO SERVE THREE-YEAR TERMS ENDING AT
THE YEAR 2001 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<CAPTION>
AGE PRINCIPAL OCCUPATION DIRECTOR
SINCE
<S> <C> <C> <C>
GEOFFREY ETHERINGTON 69 Chairman and President of Etherington 1976
Industries, a group of six privately held industrial
companies.
EDGAR G. HOTARD 54 Director, President and Chief Operating Officer 1995
of Praxair, Inc., an industrial gases supplier and
supplier of metal and ceramic coatings and
powders. Director of Iwatani Industrial Gases,
Inc., Osaka, Japan and Dexter Corporation.
JACK E. MCGREGOR 63 Chairman of the Board (1995-October 1996), 1987
Partner, Bridgeport Waterfront Investors, LLC,
and Of Counsel, Cohen & Wolf, P.C., a law firm,
(since October 1995). President and Chief
Executive Officer (1990-October 1995) of the
Company. Director of Bay State Gas
Company and People's Bank.
<CAPTION>
CLASS II DIRECTORS WHOSE THREE-YEAR TERMS END AT THE 1999 ANNUAL MEETING OF SHAREHOLDERS
AGE PRINCIPAL OCCUPATION DIRECTOR
SINCE
<S> <C> <C> <C>
JANET D. GREENWOOD 54 Partner(since 1994) and Director (since 1988
February 1998), Heidrick and Struggles, Inc., an
executive search firm; consultant 1992 to 1994.
President Emeritus of the University of
Bridgeport. Founding President of the Long
Island Sound Foundation.
DONALD M. HALSTED, JR. 71 Independent businessman. Director of Bancroft 1975
Convertible Fund, Inc., and Ellsworth
Convertible Growth and Income Fund, Inc.
JOHN A. URQUHART 69 President, John A. Urquhart Associates, a 1990
management consulting firm. Vice Chairman of
Enron Corp. Director of TECO Energy, Inc.,
Enron Corp., Hubbell Incorporated and The
Weir Group PLC. Director of Catalytica, Inc.,
and its subsidiary, Catalytic Combustion
Systems, Inc.
</TABLE>
2
<PAGE>
CLASS III DIRECTORS WHOSE THREE-YEAR TERMS END AT THE YEAR 2000 ANNUAL
MEETING OF SHAREHOLDERS
<TABLE>
<CAPTION>
AGE PRINCIPAL OCCUPATION DIRECTOR
SINCE
<S> <C> <C> <C>
GEORGE W. EDWARDS, JR. 58 Chairman of the Board (since October 1996) of 1988
the Company. Chairman of the Board of El
Paso Electric Company (since February 1996).
President and Chief Executive Officer (1991-
May 1995) of Kansas City Southern Railway Co.
Director of Hubbell Incorporated.
G. JACKSON RATCLIFFE 62 Chairman, President and Chief Executive 1982
Officer of Hubbell Incorporated, a manufacturer
of electrical/electronic components and
systems. Director of Praxair, Inc., and Olin
Corporation.
RICHARD K. SCHMIDT 53 President and Chief Executive Officer (since 1995
October 1995) and formerly Senior Vice
President (1993-1995) of the Company.
President (1992-1995) and Chief Executive
Officer (1992-March 1997) of Industrial and
Environmental Analysts, Inc., a former
subsidiary of the Company.
</TABLE>
3
<PAGE>
STOCK OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth the number of shares of Common Stock of
the Company beneficially owned, directly or indirectly, by each director, by
each of the four most highly compensated executive officers, and by all
directors and executive officers as a group, as of February 27, 1998:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR SHARES BENEFICIALLY OWNED PERCENT OF
NUMBER OF PERSONS IN GROUP DIRECTLY OR INDIRECTLY (1)(2)(3) CLASS (4)
==================================================================================
<S> <C> <C>
George W. Edwards, Jr. 1,500.00 *
- --------------------------------------------------------------------------------
Geoffrey Etherington 6,812.74 *
- --------------------------------------------------------------------------------
Janet D. Greenwood 200.00 *
- --------------------------------------------------------------------------------
Donald M. Halsted, Jr. 5,902.00 *
- --------------------------------------------------------------------------------
Edgar G. Hotard 513.53 *
- --------------------------------------------------------------------------------
Jack E. McGregor 130,421.23 1.7
- --------------------------------------------------------------------------------
G. Jackson Ratcliffe 4,341.89 *
- --------------------------------------------------------------------------------
Richard K. Schmidt 82,907.51 1.1
- --------------------------------------------------------------------------------
John A. Urquhart 500.00 *
- --------------------------------------------------------------------------------
Larry L. Bingaman 32,295.26 *
- --------------------------------------------------------------------------------
Janet M. Hansen 47,793.93 *
- --------------------------------------------------------------------------------
James S. McInerney 62,567.64 *
- --------------------------------------------------------------------------------
Directors and Officers as a group 375,755.73 4.9
==================================================================================
</TABLE>
4
<PAGE>
(1) Based on reports furnished by the directors and officers. The shares
include, in some instances, shares held by the immediate families of
directors and officers or entities controlled by directors and officers,
the reporting of which is not to be construed as an admission of beneficial
ownership. The number of shares includes options to purchase shares that
may be acquired within 60 days through the exercise of stock options under
the Company's stock option plan as follows: Jack E. McGregor, 123,500
shares; Richard K. Schmidt, 81,165 shares; Larry L. Bingaman, 31,248
shares; Janet M. Hansen, 44,251 shares; James S. McInerney, 60,751 shares;
and, directors and executive officers as a group, 340,915 shares. See
"Compensation of Directors and Executive Officers" below.
(2) Each of the directors and officers included in the foregoing table has sole
voting and investment power as to the shares of Common Stock beneficially
owned, directly or indirectly, by him or her, except for the following: (i)
as to which such powers are shared, 1,047.26 shares with respect to Mr.
Bingaman; 1,140.65 shares with respect to Mrs. Hansen; and 321.14 shares
with respect to Mr. Schmidt; (ii) as to which such powers are held by other
people or entities, 969.03 shares with respect to Mr. Etherington; 894
shares with respect to Mr. McGregor; 125 shares with respect to Mr.
McInerney; and, (iii) as to which there are restrictions as to the
disposition of shares, 334 shares with respect to Mr. McInerney.
(3) Does not include share units, each representing one share of Common Stock
credited to and held under the Company's deferred compensation program for
directors who are not employees of the Company, as discussed below under
"Compensation of Directors." As of February 27, 1998, the following stock
units have been credited under the deferred compensation program: Mr.
Etherington, 22,676.63 units; Dr. Greenwood, 445.91 units; Mr. Hotard,
445.91units; Mr. McGregor, 47.10 units; Mr. Ratcliffe, 445.91 units; and,
Mr. Urquhart, 445.91 units.
(4) Asterisk denotes percentage of beneficial stock ownership less than one
percent of the outstanding Common Stock of the Company.
BOARD OF DIRECTORS MEETINGS
The Board of Directors held six meetings during 1997. No director
attended fewer than 80 percent of the Board meetings and meetings of those
committees of which he or she was a member during 1997.
COMMITTEES OF THE BOARD
The Board of Directors has four standing committees: an Audit
Committee, a Compensation Committee, an Environmental and Public Affairs
Committee, and a Finance Committee. All members of the Committees are non-
employee directors. The Board does not have a standing Nominating Committee, as
this function is handled by the full Board. Shareholders desiring to recommend
directors should communicate with the Secretary of the Company.
AUDIT COMMITTEE
The membership of the Audit Committee consisted of Messrs. Hotard,
Etherington, Halsted and Dr. Greenwood. The Committee met three times during
1997, each time with representatives of Price Waterhouse, the Company's public
accountants, present. The functions of the Audit Committee are to recommend the
selection of auditors to the Company's Board of Directors; review the scope of
the annual audit; consider specific problems and questions that may arise in the
course of the audit; monitor the adequacy of accounting and auditing controls;
and, report to the Board of Directors with respect to these matters.
5
<PAGE>
COMPENSATION COMMITTEE
The membership of the Compensation Committee consisted of Messrs.
Ratcliffe, Edwards, Halsted and Urquhart. The Committee met four times in
1997. The functions of the Committee are to formulate executive compensation
policy of the Company; to consult with management with respect thereto and to
present recommendations relating thereto to the Board of Directors; to
administer the Company's incentive compensation plans; to formulate Company
management succession plans; and, to advise the Board of Directors on such
matters as the composition of the Board of Directors and its Committees.
ENVIRONMENTAL AND PUBLIC AFFAIRS COMMITTEE
The membership of the Environmental and Public Affairs Committee
consisted of Dr. Greenwood, and Messrs. Edwards, Hotard, and McGregor. The
Committee met twice in 1997. The functions of the Committee are to oversee the
Company's policies, practices and procedures as to compliance with environmental
laws and regulations; to assist management in formulating plans and programs to
develop and enhance public understanding of the Company; to monitor compliance
by the Company and its personnel with laws and regulations relating to lobbying
and the political process; and, to oversee the Company's community relations
programs and approving the Company's annual contributions budget.
FINANCE COMMITTEE
The membership of the Finance Committee consisted of Messrs. Urquhart,
Etherington, McGregor, and Ratcliffe. The Committee met two times during 1997.
The functions of the Finance Committee are to administer the Trust Fund of the
Company's retirement plans; to review and monitor the financial planning and
financial structure of the Company; and, to render advice, counsel and
assistance to the corporate financial officer in the execution of her
responsibilities.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company receives an annual
retainer of $15,000 plus $750 for each Board meeting and Committee meeting
attended. Committee chairmen are paid an additional annual retainer of $3,000.
Directors who are employed by the Company receive no additional compensation for
their services as directors of the Company. Pursuant to a deferred compensation
plan, any outside director may defer payment of his or her annual retainer and
meeting fees in cash or stock units. Interest equivalents on payments deferred
in the form of cash accrued quarterly (and on previously credited interest) at
the then prevailing prime rate. Dividend equivalents are paid on the stock
units and are converted into additional stock units. The deferred amounts plus
interest will be paid to such a director beginning with the calendar year
following the termination of his or her service as a director, in either a lump
sum or in any number of equal installments as the director elects. Amounts
credited to a director's stock unit account shall be paid in the form of one
share of Common Stock for each stock unit.
The Company has a directors' retirement plan related to service as a
non-employee director. After five years of such service, a director earns an
annual retirement benefit equal to 50 percent of the amount of the annual
retainer (the "Annual Retainer"). The amount of the retirement benefit earned
by a non-employee director increases for each year of service thereafter by an
amount equal to ten percent of the Annual Retainer in effect upon the cessation
of such director's service on the Board until the director has earned, after ten
years of non-employee Board service, an annual retirement benefit equal to the
full amount of the Annual Retainer. Effective July 1, 1997, the Board increased
the annual retirement benefit from a maximum of $10,000 to a maximum of $15,000
for active directors who retire after the effective date. The Board may from
time to time adjust the amount of the annual benefit currently paid to retired
directors. An annual retirement benefit not to exceed $15,000, subject to Board
adjustment, is also payable in the event of death or permanent and total
disability after five years as a non-employee director or upon termination as a
director in the event of a change in control of the Company. The benefit is
payable for the lifetime of the director and thereafter
6
<PAGE>
to the director's designated beneficiary, to the extent that the director did
not receive retirement benefits for a period at least equal to his or her years
of credited service as a non-employee director. Except for death, disability or
a change in control of the Company, retirement benefits under the plan do not
become payable until age 65 or the later cessation of Board service. Such
benefits are unfunded.
Directors are covered under the Company's group health insurance plans
as a supplement to such insurance as may be applicable to the directors from
other sources other than Mr. Edwards whose primary coverage, effective February
1, 1997, is the Company's group health insurance plans. In 1997, group health
insurance benefits provided to Dr. Greenwood and Messrs. Edwards, Etherington,
Halsted, Jones, and Urquhart amounted to $3,113, $5,293, $52, $680, $130, and
$1,390, respectively.
Effective April 1, 1997, the Board approved an annual cash payment of
$50,000 for Mr. Edwards, in his capacity as Chairman of the Board, concurrent
with Mr. Warner's retirement as Vice Chairman.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table presents the compensation provided by the Company to
its Chief Executive Officer and the Company's three most highly compensated
executive officers for services rendered to the Company in 1995, 1996 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------- -------------------------- -------
RESTRICTED ALL
OTHER STOCK SECURITIES OTHER
ANNUAL AWARDS UNDERLYING COMP.
SALARY BONUS COMP. (1) OPTIONS/SARS (2)
YEAR ($) ($) ($) ($) (#) ($)
================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
R. K. Schmidt (3) 1997 233,750 100,000 40,000 14,377
President and Chief
Executive Officer 1996 215,000 77,400 40,000 10,539
1995 196,516 19,200 121,058 50,000 7,039
================================================================================================
J. S. McInerney (4) 1997 182,500 63,825 20,000 8,993
President and CEO,
BHC Company 1996 175,000 44,100 20,000 10,215
1995 163,000 52,000 20,000 9,161
================================================================================================
J. M. Hansen (5) 1997 157,500 55,200 20,000 8,910
Executive Vice
President, CFO and 1996 150,000 40,500 20,000 8,555
Treasurer
1995 137,500 40,100 20,000 7,802
================================================================================================
L. L. Bingaman 1997 119,750 28,750 5,000 6,399
Vice President,
Corporate Relations 1996 117,000 21,240 5,000 6,179
and Secretary
1995 113,000 20,300 5,000 6,323
================================================================================================
</TABLE>
8
<PAGE>
(1) The number and dollar value of shares of previously granted restricted
stock held on December 31, 1997, based on a closing price of the Company's
Common Stock on December 31, 1997, was: J. S. McInerney--334 shares
($11,544).
(2) The amounts shown for named officers represent the Company's contribution
to The Employee Savings and Investment Plan accounts for such officers.
(3) Mr. Schmidt became President and Chief Executive Officer of the Company on
October 1, 1995, having served previously as President and Chief Executive
Officer of Industrial and Environmental Analysts, Inc. ("IEA"). The amount
shown under Other Annual Compensation for 1995 represents Mr. Schmidt's
relocation allowances, including reimbursement for taxes.
(4) Mr. McInerney became Chief Executive Officer of BHC Company (formerly
"Bridgeport Hydraulic Company") on April 25, 1995, and President of BHC
Company on April 23, 1991, having served previously as Chief Operating
Officer and Executive Vice President.
(5) Mrs. Hansen became Executive Vice President on October 1, 1995, and Chief
Financial Officer of the Company on April 28, 1992, having served
previously as Senior Vice President, Chief Financial Officer and Treasurer
of the Company.
9
<PAGE>
STOCK OPTIONS
The following table sets forth information with respect to all options
granted to the named executive officers during 1997.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
NUMBER % OF
OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES OR BASE PRESENT
GRANTED IN FY PRICE EXPIRATION VALUE
NAME (#) 1996 ($/SH) DATE ($) (1)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
R. K. Schmidt (2) 40,000 29% $30.875 12/2/07 $132,080
- ----------------------------------------------------------------------------------
J. S. McInerney (2) 20,000 15% $30.875 12/2/07 $ 66,040
- ----------------------------------------------------------------------------------
J. M. Hansen (2) 20,000 15% $30.875 12/2/07 $ 66,040
- ----------------------------------------------------------------------------------
L. L. Bingaman (2) 5,000 4% $30.875 12/2/07 $ 16,510
==================================================================================
</TABLE>
(1) The Black-Scholes option pricing model was used to estimate the options'
grant date present value. Assumptions for options granted are as follows:
17% volatility; risk free rate of return of 5.79% based on six-year U.S.
Treasury securities; dividend yield of 6.49%, and an estimated period to
exercise of 6 years.
(2) One-third of the stock options granted to the named executive become
exercisable on each of the first three anniversaries of the grant date, but
may be exercised earlier if there is a change in control of the Company as
defined under "Employment Contracts and Termination and Change-in-Control
Arrangements" below. The Company has not granted Stock Appreciation
Rights.
10
<PAGE>
The following table sets forth the aggregated 1997 year-end options values.
During 1997, 12,000 options were exercised by the named officer.
AGGREGATED OPTION EXERCISES IN 1997 AND 1997 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES
ACQUIRED NUMBER OF SECURITIES VALUE OF UNEXERCISED
ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
EXERCISE REALIZED OPTIONS AT FY-END (#) FY-YEAR END ($) (1)
-------------------------------------------------------------------------
EXERCISABLE/
NAME UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. K. Schmidt -- -- 81,166/83,334 881,712/584,382
J. S. McInerney -- -- 73,250/40,000 751,225/271,666
J. M. Hansen -- -- 44,250/40,000 466,819/271,666
L. L. Bingaman 12,000 85,500 31,248/10,000 299,025/67,917
===========================================================================================
</TABLE>
(1) Market value of underlying securities at year-end, minus the exercise or
base price.
RETIREMENT PROGRAM
Under the Company's qualified retirement plan (the "Pension Plan") and the
Supplemental Benefit Plan (the "Supplemental Plan") for certain key executives,
an eligible employee will receive a benefit at retirement that is based upon the
employee's number of years of credited service and average pensionable
compensation (salary in case of the Pension Plan and salary plus annual bonus in
case of the Supplemental Plan, in each case as set forth in the Summary
Compensation Table) during, in the case of the Pension Plan, the highest five
consecutive years of the employee's final ten years of service. The benefits
under the Supplemental Plan are not subject to the Internal Revenue Code
provisions that limit benefits under the Pension Plan. For a single employee,
the normal form of benefit is a straight life annuity option and for a married
employee the normal form of benefit is the 50 percent joint and survivor annuity
option. As of December 31, 1997, the years of credited service are 12 years
(after giving effect to Mr. Schmidt's employment agreement described below) for
Mr. Schmidt; for Mr. McInerney 27 years; Mrs. Hansen, 22 years; and Mr.
Bingaman, 8 years. Pursuant to Mr. Schmidt's employment agreement dated July 1,
1997, described under the caption "Employment Contracts, Termination and Change-
in-Control Arrangements," years of service considered eligible under the
Supplemental Plan include his service with the former Aquarion Company
subsidiary, Industrial & Environmental Analysts, Inc. ("IEA, Inc."), for
eligibility, vesting and benefit purposes; in addition, Mr. Schmidt's employment
agreement doubles his credited years of service for the purposes of the
Supplemental Plan. The following table illustrates for representative average
annual pensionable compensation and years of credited service the annual
retirement benefit payable to employees under the Plans upon retirement in 1998
at age 65 based on the straight life annuity form of benefit.
11
<PAGE>
PENSION PLAN TABLE
FIVE-YEAR AVERAGE YEARS OF CREDITED SERVICE
COMPENSATION RECOGNIZED -----------------------------------------------
UNDER THE PLAN 10 15 20 25 30
- --------------------------------------------------------------------------
$150,000 $25,219 $ 37,828 $ 50,437 $ 63,047 $ 75,656
$210,000 $36,384 $ 54,576 $ 72,767 $ 90,959 $109,151
$270,000 $47,549 $ 71,323 $ 95,097 $118,872 $142,646
$330,000 $58,714 $ 88,071 $117,427 $146,784 $176,141
$390,000 $69,879 $104,818 $139,757 $174,697 $209,636
$450,000 $81,044 $121,566 $162,087 $202,609 $243,131
==========================================================================
EMPLOYMENT CONTRACTS, TERMINATION AND CHANGE-IN-CONTROL ARRANGEMENTS
Messrs. Schmidt, McInerney, Bingaman and Mrs. Hansen each have an
employment agreement with the Company. Mr. Schmidt's agreement, dated July 1,
1997, and the agreements with Messrs. McInerney, Bingaman and Mrs. Hansen, each
have a term of two years and are extended monthly for an additional month unless
either the Company or the employee elects otherwise, in which event the
agreement would expire at the end of the then remaining two-year term. Each
agreement provides for the payment of a minimum base salary which is subject to
increase by the Board in accordance with the Company's customary compensation
practice and for participation by the employee in the Company's benefit plans
and programs. The annual base salaries, effective October 1, 1998, for Messrs.
Schmidt, McInerney and Mrs. Hansen are $265,000, $200,000 and $175,000,
respectively. The annual base salary for Mr. Bingaman, effective October 1,
1997, is $125,000.
In the event of either a material lessening of the employee's
responsibilities during the term of the agreement, or assignment or reassignment
to another geographic area, or in the case of Messrs. McInerney, Bingaman and
Mrs. Hansen, liquidation, dissolution, consolidation, acquisition or merger of
the Company (except by a successor corporation of at least equal net worth which
assumes the agreement) or a reduction in compensation and benefits, the
agreement may be terminated and certain benefits would be provided to the
employee. In the case of Mr. Schmidt, the agreement may be terminated and
benefits provided if (i) any person or group acquires 20% of the Company's
outstanding voting shares; (ii) less than a majority of the Company's Board of
Directors are directors who were in office on the date of the agreement
("Incumbent Directors") or who were recommended or elected by a majority of
Incumbent Directors otherwise than as a result of a proxy contest; (iii)
consummation, with certain exceptions, of a reorganization, merger or
consolidation or disposition of substantially all of the assets of the Company;
or, (iv) approval by the shareholders of a liquidation or dissolution of the
Company. Mr. Schmidt's benefits may be paid in either a lump sum or in
installments but will be paid in a lump sum in the event of termination of the
agreement as a result of any of the foregoing change in control events. The
benefits provided under the respective agreements would essentially compensate
the employee for the salary (subject, in Mr. Schmidt's case, to a limit of 2
times his annual salary, and as to Messrs. McInerney, Bingaman and Mrs. Hansen,
to a limit of 1.5 times each person's annual salary), benefits, including the
Company's share of contributions which would have been made on behalf of the
employee to the Company's Employee Savings and Investment Plan (and the related
Supplemental Benefit Plan) and pension rights he or she would have had for the
remainder of the primary term of the agreement. In addition, Mr. Schmidt's
contract provides for a lump sum cash payment equal to the average incentive
award earned in accordance with the provisions of the Company's annual incentive
plan over the two calendar years immediately preceding his termination. As
stated under the captioned "Retirement Program," Mr. Schmidt's employment
agreement recognizes his years of service with IEA, Inc. for eligibility,
vesting and benefit purposes under the Supplemental Benefit Plan and doubles his
12
<PAGE>
credited services for purposes of this plan. At salary levels effective October
1, 1998, the maximum termination benefits relating to the salaries of Messrs.
Schmidt, McInerney, and Mrs. Hansen would be $530,000, $300,000, and $262,500,
respectively; Mr. Bingaman's maximum termination benefit relating to his salary
at January 1, 1998 would be $187,500. Coverage under the Company's health and
welfare benefit plans would be extended to these individuals for a period of 24
months after termination under the circumstances previously described.
Unvested options would become exercisable in the event of a change in
control of the Company. For this purpose, a change in control shall be deemed
to have occurred in the following circumstances unless the event in question has
been approved in advance by the continuing directors: (i) the acquisition by
any person or group of 15 percent of the Company's outstanding shares; (ii) the
purchase of the Company's outstanding shares under a tender offer or exchange
offer; (iii) less than two-thirds of the Company's Board of Directors are
continuing directors; or, (iv) approval of the shareholders of a merger,
consolidation, liquidation or dissolution of the Company or the sale of its
assets. Continuing directors shall mean members of the Board on the date the
plan in question was adopted or who were recommended or elected to the Board by
a majority of continuing directors.
BOARD OF DIRECTORS COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PHILOSOPHY
The objectives of Aquarion's executive compensation program are to link
executive compensation with creation of customer and shareholder value, to
attract and to retain qualified executives, and to produce strong financial
performance for the benefit of our shareholders while providing a high level of
service and value for our customers. In order to meet these objectives, the
compensation program is designed to be competitive with compensation programs
provided by comparable businesses. For the water utility business, the
comparison group consists of water and other utilities (the "utility comparison
group") with comparable revenues as maintained in various databases, including
the companies in the Edward Jones water utility group displayed on the
performance graph. For the non-utility businesses, the comparison group
consists of companies with comparable revenues and lines of business as
maintained in various other databases (the "non-utility comparison group").
EXECUTIVE COMPENSATION PROGRAM
Each year, the Compensation Committee, which is comprised entirely of
outside directors, recommends to the Board of Directors compensation
arrangements for officers, including the salary structure and salary grade
assignments, individual salaries, annual and long-term incentive plan awards,
performance standards for new awards, payouts from past awards, and the overall
design of the executive compensation program.
Aquarion's executive compensation program in 1997 consisted of three
components: salary, annual incentive compensation and stock options.
The primary comparison for CEO compensation is the utility comparison group
of 12 investor-owned water utilities to which Aquarion compares its business
performance. When performance standards are met, the total compensation for the
CEO will position him above the median of this comparison group.
Salary ranges are set by periodic comparison to rates of pay for comparable
positions within the utility industry for corporate and utility positions and
the non-utility industries for non-utility positions. Individual salaries are
generally considered for adjustment based on external salary levels, individual
performance and potential, and/or changes in duties and responsibilities. Based
on salary data compiled by outside consultants, officer salaries approximate the
median of the salaries reported for comparable positions.
13
<PAGE>
Annual incentive compensation opportunities are targeted such that at
targeted performance levels, salary plus annual incentive awards for corporate
and water utility positions will be at or near the 50th percentile of companies
within the utility industry, and for non-utility positions, at or near the 50th
percentile within non-utility industries. Annual objectives are established,
subject to Compensation Committee approval, for corporate, operating company and
individual performance. Customer service performance is a criterion for every
executive with earnings per share being the criterion for corporate performance
and pre-tax profit being the criterion for operating company performance. The
Chief Executive Officer's targeted award is based on corporate performance and
customer service, while other officers' targets are allocated among corporate,
operating company and individual objectives and customer service as appropriate.
Targeted award levels also vary according to magnitude of responsibility, with
incentive compensation constituting a potentially greater portion of the Chief
Executive Officer's total annual compensation than it does for other officers.
The Company's performance in 1997 is largely attributable to impressive
operating results at the utility and forest products subsidiaries, as well as
the divestiture of the Company's environmental testing laboratory business,
Industrial & Environmental Analysts, Inc. Net income from the Company's
continuing operations was $15.0 million, or $2.10 per share, versus $13.8
million, or $2.00 per share in 1996. The financial achievements were coupled
with a number of accomplishments in 1997. BHC Company was awarded the
Connecticut Quality Improvement Award for operational and managerial excellence,
as well as the Milan Bull Award from the State of Connecticut Department of
Environmental Protection for the Company's commitment to the environment. In
addition, the William S. Warner Treatment Facility, a state-of-the-art water
filtration facility, was commissioned mid-year ahead of schedule and 6.5% under
budget.
Award opportunities under the stock option plan are targeted between 50th
and 75th percentile utility industry levels for the corporate and utility
positions and at the 50th percentile of general industry levels for non-utility
positions (which levels are reflected in databases maintained by the Company's
compensation consultants). The use of stock options is intended to encourage
stock ownership by management and to further assure alignment of management's
compensation with shareholder return. Option awards are determined each year
based on the expected present value of long-term incentives, and are made
independent of an executive's balance of unexercised options.
In December 1993, the Internal Revenue Service adopted a regulation,
applicable to publicly held corporations, which denies federal income tax
deductions for compensation in excess of $1 million paid in a taxable year to
any of its named executive officers. The Company does not anticipate that any
of its executives will exceed this limit on deductible compensation.
CEO COMPENSATION - 1997
Based on the advice of professional consultants independently employed by
the Committee and coupled with its members' individual business judgments, the
Compensation Committee reviewed and approved the level and form of compensation
for the Chief Executive Officer in 1997.
Mr. Schmidt's base salary as CEO of Aquarion is positioned below the median
among chief executives within the utility comparison group. The Committee
recommended a 1997 annual incentive award of $100,000, based on performance
factors described above. When incentive compensation is considered, this
positions his total cash above the median of the comparison group. Mr. Schmidt
also received a stock option grant in 1997 of 40,000 options. The grant is
exercisable at a price equal to the market price of the stock on the date of
grant.
Compensation Committee
G. Jackson Ratcliffe, Chairman
George W. Edwards, Jr.
Donald M. Halsted, Jr.
John A. Urquhart
14
<PAGE>
SHAREHOLDER RETURN PRESENTATION
The following performance graph compares the yearly percentage change in
the Company's cumulative total shareholder return on its Common Stock with the
cumulative total return on the S&P 500 Index and the Edward Jones Water Utility
Industry Return Comparison, which includes the Company, for the five years
commencing 1993 and ended 1997. The Edward Jones Utility Industry peer group
provides a broad array of companies that are similar to Aquarion's market
capitalization.
FIVE YEAR CUMULATIVE TOTAL RETURN - S&P 500, EDWARD JONES
WATER UTILITY INDUSTRY, AND AQUARION
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
Edward D. Jones Aquarion S&P 500
--------------- -------- -------
12/92 100 100 100
12/93 114.4 121.2 110.1
12/94 104.1 109.1 111.5
12/95 125.8 124.2 153.4
12/96 158.1 144.8 188.6
12/97 213.9 190.6 251.5
The Peer Group consists of American Water Works Company, Inc., Aquarion
Company, California Water Service Company, Connecticut Water Service, Inc.,
Consumers Water Company, Dominguez Services Corp., E'Town Corp., IWC Resources
Corporation, Middlesex Water Company, Philadelphia Suburban Corporation, SJW
Corp., Southern California Water Company, Southwest Water Company and
United Water Resources.
15
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected Price Waterhouse, 300
Atlantic Street, Stamford, Connecticut 06904, as its independent public
accountants for 1998. In accordance with a resolution of the Board of
Directors, this selection is being presented to shareholders for ratification at
the Annual Meeting.
The firm of Price Waterhouse has audited the financial statements of
the Company annually since 1931. The Company has been advised that
representatives of Price Waterhouse will be present at the meeting with the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.
If the appointment of Price Waterhouse is not approved by the shareholders,
or Price Waterhouse ceases to act as the Company's independent accountants, or
the Board of Directors removes Price Waterhouse as the Company's independent
accountants, the Board will appoint other independent accountants. The
engagement of new accountants for periods following the 1999 Annual Meeting will
be subject to ratification by the shareholders at the 1999 meeting.
The Board of Directors recommends a Vote "FOR" ratification of the
selection of Price Waterhouse as the Company's independent public accountants.
16
<PAGE>
ANNUAL REPORT
Beginning on April 2, 1998, the Company is mailing to its shareholders of
record copies of its Annual Report for the year ended December 31, 1997. Such
Report is not a part of the proxy materials.
THE COMPANY WILL FURNISH TO ANY BENEFICIAL OWNER OF ITS COMMON STOCK UPON
WRITTEN REQUEST, WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR 1997 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. REQUESTS
SHOULD BE ADDRESSED TO CORPORATE COMMUNICATIONS, AQUARION COMPANY, 835 MAIN
STREET, BRIDGEPORT, CONNECTICUT 06604.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any proposal that a shareholder intends to present at the 1999 Annual
Meeting must be received at the Company's principal executive offices by
November 18, 1998, to be included in the proxy statement and form of proxy
relating to the meeting.
OTHER MATTERS
OTHER BUSINESS
Management knows of no other matters to be presented to the 1998 Annual
Meeting of Shareholders. If any additional matters should be properly presented,
it is the intention of the persons named in the proxy to vote with respect to
such matters in accordance with their best judgment.
By Order of the Board of Directors
Larry L. Bingaman
Secretary
17
<PAGE>
DIRECTIONS TO THE WILLIAM S. WARNER
WATER TREATMENT PLANT
TAKE MERRITT PARKWAY (ROUTE 15) TO EITHER EXIT 44 OR 45
FOLLOW ROUTE 58 NORTH (HEADING TOWARD EASTON)
DRIVE APPROXIMATELY 1.5 MILES TO HEMLOCKS RESERVOIR,
WHICH IS ON THE RIGHT
ENTRANCE TO FACILITY IS ON THE LEFT, OPPOSITE THE RESERVOIR.
[MAP]
AQUARION COMPANY
835 MAIN STREET
BRIDGEPORT, CONNECTICUT 06604
(203) 335-2333 . http://www.aquarion.com
[RECYCLED LOGO] Printed on recycled paper.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
George W. Edwards, Jr., Donald M. Halsted, Jr. and Janet D. Greenwood,
or any of them, with power of substitution, are hereby appointed proxies of the
undersigned to vote all common stock of Aquarion Company owned by the
undersigned at the Annual Meeting of Shareholders to be held at the William S.
Warner Water Treatment Plant, 4975 Black Rock Turnpike, Fairfield, Connecticut,
on April 29, 1998, or any adjournment thereof, upon such business as may
properly come before the meeting, including the following items, as set forth in
the Notice of Meeting and Proxy Statement.
1. Election of Class 1 Directors 2. Ratification of selection of
independent public accountants
The share represented hereby will be voted in accordance with the
directions given by the shareholder. If not otherwise directed, the shares
represented by this proxy will be voted for Proposals 1 and 2.
(Continued and to be signed, on reverse side)
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<S> <C>
Please mark
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2: your votes as
indicated in
this example [X]
1. Election of Class I Directors NOMINEES: Geoffrey Etherington, Edgar G. Hotard and Jack E. McGregor
(To withhold authority to vote for any individual nominee,
write that nominee's name on space provided below.)
FOR WITHHOLD
[ ] [ ] ---------------------------------------------------------------------
2. Ratification of selection of Price Waterhouse
as independent public accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] I PLAN TO ATTEND
THE MEETING [ ]
] DATED:---------------------------------------------------------, 1998
---------------------------------------------------------------------
Signature of shareholder
---------------------------------------------------------------------
Signature (if held jointly)
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. PLEASE
MARK, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE U.S.A. WHEN SIGNING
AS ATTORNEY, EXECUTOR, TRUSTEE OR GUARDIAN OR IN OTHER
REPRESENTATIVE CAPACITIES, PLEASE GIVE FULL TITLE AS SUCH.
</TABLE>
FOLD AND DETACH HERE
AQUARION COMPANY
ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 29, 1998
9:30 A.M.
William S. Warner Water Treatment Plant
4975 Black Rock Turnpike
Fairfield, Connecticut 06430
IF YOU PLAN TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS,
PLEAE CHECK THE ABOVE BOX.
